The Happy Zero Bank Account Balance
I am so proud to say that I am an urban poor retiree. Don’t get me wrong, my bank balance is still pretty close to zero, but this time the big chunk of it goes to my house and apartment mortgages and after a few years of paying the installments, it sure feels pretty good to see the rising market price for the two properties in the listing that I diligently check quarterly. But the road to get there was pretty bumpy.
When I graduated from college, I took the first job offered to me because I knew I wouldn’t stay long. I only needed the experience so I could fulfill the job experience requirements to apply for my MBA Program abroad. It just so happened, through that job I met a colleague who came from a wealthy family and hang out with all the kids my age that also came with money. Ok, some of them probably pushing it far just like I did. I had to keep up. From Gucci shoes, Prada bags to five-star lunches and dinners. We’d sit at a Grand Hyatt Hotel in Jakarta just to get a portion of Hainan Chicken Rice.
Needless to say, my salary was nowhere close to cover my ridiculous expenses. Luckily at the time, I had a magic credit card. The bills came to my Mom. There were countless frantic calls from her who was shocked to find my Gucci and Prada purchases. So that easily added up to zero savings.
But who cares? Why would I need savings? Retirement was ages away. Besides, once I get my MBA, I’d get one of those fancy jobs that will pay for the Prada. Guess what? That fancy job never came. By the time I left New York, I only had a few thousand dollars in my checking for working for more than 4 years in a Big 4 Accounting Firm. I was planning to save one thousand per month when I started working. But there were always other things that I felt I needed urgently to help with the job-related stress. It was just a lame excuse. How the heck did a Fredderick Fekkai hair cut reduce my stress? In its entirety, I spent my whole twenties in zero, even negative savings.
Not too long after my second child was born, I was staring at my bank account, feeling uneasy. True, I had a thick deposit equals to around 24-month worth of my living expenses at that point, thanks to my husband but, no way that the amount could cover my retirement and health care bills should I need it someday. The money was a one-time deposit he made for me in the beginning of our marriage, so unfortunately, it was not going to be repeated. To make it more complicated, I no longer had a promising career and knew that I wouldn’t make significant amount of money with the rate of work I was doing then. Reality crept in. How would I pay for my retirement?
Looking back from my experience, surrounding environment plays a major role into one’s saving habit as it will shape our mindsets toward it. Never underestimate the peer-pressure and it goes beyond senior high school peer-pressure. It goes all the way until adulthood and even for some of the not-so-lucky ones, peer-pressure goes all the way until their middle age. Take my surrounding for example.
Indonesia is one of the countries with low Gross National Saving per GDP and the number shows declining trend among Indonesian to save whereas the highest point was at 33% in 2011 and 30.87% in 2015. The famous Buzzfeed article by Gayatri Jayaraman confirms that the lack of saving augmented by the urban poor phenomenon happens in other parts of Asia such as India, though some Asian countries continue to show strong saving percentages. In 2015, Indonesian Gross National Saving was 30.87% whereas Singapore, South Korea, and China showed 46.73%, 35.11% and 48.87% in saving respectively. So this is a nation even a regional phenomenon.
The World Economic Forum had released a data on the average number of working hours needed to buy an iPhone in six different countries. In New York City, you need 24 hours. Guess how many you need in Jakarta? 468 hours! Divided by average daily working hours of 8 hours, that gives you 58.5 days! But yet, at least 2.5 million people own an Iphone. This has not included the millions of people on the high-end types of Samsung phone. This is the peer-pressure I was talking about. When iPhone 6 just came out, a couple of my cousins were the first to use it and frankly they didn’t have a permanent job. People around us would say, you’re much settled than them, how come you still use that old phone? Ok, I was using a 5s. I was sure it wasn’t that bad.
I am not here to talk about why Indonesia or India has a low saving rate or what finance people usually call marginal propensity to saving (MPS). Instead, I want to make a point that everyone should start investing as early as possible and avoid my rocky path. Let’s honestly sit down and take a look at your bank balance and make a ballpark calculation as to whether the balance you have in your bank account plus mutual funds plus properties plus any other investment types you may have will be sufficient to cover your retirement period. Here’s an example of how you make that ballpark calculation: if you plan to retire by the time you are 60 and you predict that your life expectancy goes all the way until you are 85, therefore, you have 25 years of retirement period. If at the moment your spending rate is at $75,000 per year and you want to keep your current lifestyle, then, you have to have $1,875,000 (25 x $75,000) to cover your whole retirement period. Please note that this calculation has not included the very important inflation rate and that the saving rate will be different for each person, depending on several factors such as your age, your current saving balance, your intended life style etc.
So now you know that you need $1,875,000 to cover your retirement period. If you are now making $100,000/year and spend $75,000/year, you have $25,000 that you can save. With this saving rate, you need 75 working years to cover your retirement. If you feel a bit dizzy now, don’t worry, I too had a headache when reality hit me a few years back. Because I feel like I had a late start, I took a couple of drastic changes into my personal finance planning and management. First, I revolutionized my budget. Keep in mind that this is not as easy as scratching one or two number to make it look good but it had to look reasonable to keep your motivation intake. So look at your budget and decide which ones that still have rooms for efficiencies, without making you stressed out. I personally don’t think I was capable of remove all of my eat-out budget, so instead, I reduce the frequency of eating in a restaurant from 2-3 times a week to once a week. I also reduce the beauty-related spending from high class brands to middle class brands, with a possibility to buy the high-end fashion just once a year. In my case, I could only streamline my budget for up to 10%. But, hey! It’s better than nothing.
Second, after a thorough consideration into my personal condition and goal plus the fact that I have a binge-shopping history, I decided that investing in a property in Jakarta would be a good match for me. I live two hours away by plane but I purchased a property in Jakarta. Why? Because I need anything that can jump up my investment at an incredible rate to make up for my slacking in investing and Jakarta has that advantage. Investment is really unique to each personality. So, if anyone’s good with keeping more liquid asset then by all means, invest in other forms such as mutual funds.
However, how was I supposed to raise enough money for the down payment and how would I pay for the monthly payment? Everyone knew that one way was to increase my income. I realized that my job situation is complicated. For his own personal reasons, my husband does not allow me to work for others except for him and his family, which have limited capabilities to raise my income. For those who are luckier than me and are able to work for longer hours, then right now there are too many opportunities to work from home. Go to any social media platform such as Facebook or Pinterest and you’d find hundreds of second jobs opportunities, including working from home opportunities.
Since that was not an option for me, I bargained hard with my husband to expand my roles so he could raise my salary. After months of negotiation, he agreed to expand my role in the office and double my salary.
As of now, I had the deposit from the emergency fund, a streamlined budget and a higher monthly income. I still didn’t have enough down payment for the property I wanted. At least I had the motivation to keep saving diligently. I lost my father to a plane crash about a couple of years after the plan to buy property had come up. My Mom decided to share a portion of my late Father’s deposit accounts which really just the last chunk I needed to get the first property. I admit, I got lucky as my parents again came as my safety net. Not too many people have that luxury, and that’s another reason why younger generations should get acquaintances with saving, investing and retirement as early as possible.
Never think that the peer-pressure stops there. I could only afford certain condition of a house. It was definitely not within the wealthy nor prestigious neighborhood with wide streets and those green trees, but with my budget, I got a pretty good deal. But this purchase had shifted my mindset in the most significant way. The purchase seemed to fulfill my need for self-actualization. I felt proud and satisfy about myself that I felt like the peer-pressures don’t matter anymore. Afterward, I don’t care about those branded items anymore, as long as the clothing fits me well. I am not bothered with the fact that my house is not on one of those fancy streets because I know, what I have is my hard work so be it. This purchase was a proof that I am an urban-poor retiree. If I were still in my old mind-set, I’d probably spend the portion that my parents gave me for some fancy diamonds and branded bags, but instead I used it for a responsible spending for my future.
This first property provided me with additional rent income which gave me a room to start
acquiring an apartment. This apartment is still under constructions at this very moment, so, the buyers were given options to install the down payment in 36 installments or in other words, I don’t need that big chunk of money to start investing in this second property.
With two installments, do not ask about my bank balance though I still managed to have the necessary balance for the rainy days. The difference between the zero balance before and after my urban poor period was the leverage I have toward the uncertainties in the futures.
If I may suggest anything on a hindsight bias, though, I wish there were a couple of things I figured out earlier in my life. I wish that there were campaigns to reach younger generations in the 20s and 30s to better equipped them about costs that will incur in the future such as retirements and sickness. Also, I wish that investment options and strategies were available in more affordable means for those in their early stage of their careers and personal finance education should be taught beginning in such early age.
It’s great if you are in your mid-twenties and already working toward your investment, but remember that It’s not the end of the day if you’re over 30 and just realize that you need to start saving now. It’ll just be a bit of harder work as you need to change the attitude toward savings and take immediate actions. Be pretty some other way and let’s start saving and investing.
Agatha is an education enthusiast, who left her career as young adult in NY and SG, return to homeland to be a mom of two beautiful daughters and find love in writing and education for youngsters.